PA Consulting Group’s experience, particularly in the manufacturing sector, leads us to believe that new technologies can unlock the significant untapped potential in this area. The new breed of Advanced Planning and Scheduling (APS) systems, working in conjunction with existing ERP investment, should enable supply chain managers to rectify this situation. This new technological capability, when aligned with a much deeper understanding of supply chain management, will bring significant benefit to the whole enterprise, say Robert Duncan, Keith Smurthwaite and Tony Schofield from Manufacturing Industries Practice at PA Consulting Group
The significant systems investments made to date have realised a range of benefits in the areas of financial control, business process standardisation and administration costs. While huge strides have been made in operational effectiveness and realisation of both hard and soft benefits, management still does not feel that they have obtained ‘value for money’. The perception, and indeed in some cases the reality, is that ERP systems have struggled to deliver SC benefits, despite claiming to represent ‘best practice’ and to be the most sophisticated tool available to SC managers.
Too high expectations
Delivery lead times, inventories, and supply chain costs have not come tumbling down, and in many cases service levels continue to be poor. Managing the total supply chain is still a complex, disintegrated task that frustrates and confounds most management teams. Management has expected to be able to use their ERP systems to manage the complex decision-making processes inherent in global supply chains, using visibility of supply/demand information at all stages. ‘The ‘dream’ of treating stocks in several locations as one entity, aggregating individual demands to a single demand and undertaking multi-factor trade-off calculations quickly, unfortunately has not been realised,’ say Duncan, Smurthwaite and Schofield.
In PA’s view, this sub-optimal level of benefits has been due to a number of factors. Early implementations were based on ERP’s roots of Manufacturing Resources Planning and Distribution Resources Planning and generally achieved limited benefits; only when combined with business process re-engineering did later implementations start to deliver significant benefits. Poor or inappropriate strategies and deployment have also been responsible -for example strong financial perspectives which have worked counter to achieving SC benefits, resulting in trade-off calculations across a wide spectrum of the business processes. In conjunction is the issue of non-integration, with ERP systems implemented with other site-based systems, usually where the site system has been considered ‘best of breed’ (typically in customer facing activities, sales forecasting and production scheduling).
There has also been an inability to fully exploit the ERP system’s capability and achieve management’s objectives, because of fundamental lack of training in system use or understanding of the system’s potential. There is without question, a significant shortage of real knowledge, skills and understanding of how supply chains should be configured and operated to meet market needs. This criticism applies to producers as well as chosen ERP implementation partners/agencies. Coupled with this, has been the lack of effective decision support tools with the required functionality to support the integrated management of an organisation’s supply chain. Whilst ERP systems provide an excellent platform for executing plans and schedules, their planning and scheduling processes are typically fragmented and technologically limited.
Finally, while some ERP systems are competent at plant-level execution, they were never intended to provide a fully integrated approach to supply chain management. Consequently, users have expected their systems to deliver something that they were not designed to do and, not surprisingly their expectations have not been met.
Real results
Much is demanded of supply chain management systems [see box], and the concern is that the quest to leverage the ERP platform will be fruitless and, as a result, ERP investment will only ever deliver sub-optimal supply chain results.
To manage the supply chain effectively, support systems ideally should be able to:
- Work from ‘end to end’ - optimising along the entire supply chain and not just at the nodes, and extending out by e-business
- Work from ‘top to bottom’ - providing both overall supply chain planning, local planning and scheduling
- Work from ‘side to side’ - supporting all supply chains existing within a business
- Synchronise the scheduling activity along the Supply Chain ensuring consistent demand
- Optimise the schedule automatically by considering the real constraints of all elements and their inter-relationships
- Respond rapidly to changes in demand for the organisation’s products
- Work within the business framework and objectives
PA believes that companies can indeed unlock the potential of their ERP investment through a critical combination of new technological developments and the plugging of the SC skills gap. Help is now at hand in the form of the additional functionality of APS systems, which when linked to ERP systems, enable management to make a step change in SC performance for the business as a whole. Furthermore, the use of Internet and e-business technologies can leverage these gains. However, the implementation of these latest advances in SC software is unlikely to maximise the potential benefits unless the organisation’s SC knowledge gap is resolved, with both focused internal training in SCM techniques and an implementation partner with in-depth SC expertise.
Whilst each aspect can move a company forward, it would be a mistake to believe that one element alone can make a quantum leap. Indeed it is the synergistic effect of both technology and people that in PA’s view can really deliver return on investment required by shareholders and stakeholders. The result - an end-to-end SC system - should realise gains in the three key areas of SCM: operating costs, service levels and asset utilisation.
APS
The development of APS systems, with additional functionality, is the most significant step forward in SCM for ten years. A new range of products and techniques is now emerging called Advanced Planning and Scheduling systems, such as APO, specifically designed to enable management to resolve the supply chain and asset utilisation issues, and which provide much of the missing functionality required to unlock the full potential of ERP investment. Of primary interest to managers that have successfully implemented ERP systems, are the latest developments in constraints-based scheduling systems such as ILOG to manage complex scheduling tasks.
This new breed of APS software exhibits a high business content in their functionality and incorporates business-wide SC issues within their optimisation parameters. Not surprisingly they consist of a suite of modules that can be implemented in a staged manner; and are steadily building a track record of delivering significant benefits.
APS systems do not stand-alone but work with existing ERP systems, utilising a planning approach to the entire Supply Chain network, away from the traditional site-orientated concepts, as illustrated in Figure 1 below. In essence, they model the Supply Chain network as a whole from supplier to customer and optimise in a holistic fashion, using whatever parameters the business considers to be of importance. In addition, they integrate across the traditional functional elements of the Supply Chain such as purchasing, production planning, inventory control, manufacturing, distribution, demand management and order capture, focusing on actual customer demand and real product availability rather than forecasts.
CLP systems
Decision support tools and techniques have also improved dramatically in the last decade. In particular, Constraints Logic Programming (CLP) has emerged as the major technique for finding rapid solutions to complex problems. These techniques have been enhanced by the improved performance and capability of mathematical optimisations tools, such as engines for undertaking specific calculations. The use of these tools has been much simplified to allow the user to concentrate on the mechanics, rather than the mathematics, of the tool set.
CLP techniques rely on a rigorous approach to the definition of the problem being modelled and optimised, to enable the software to perform efficiently – ie the ability to perform successive iterations using varying parameters in a short space of time. Real bottlenecks can be very quickly modelled at the strategic, operational and tactical levels, thereby minimising the need for human intervention, leaving management to focus on the task of decision-making, based on the information provided by the system. Something the human brain is far better equipped to do than a computer system!
Hardware developments have also been made to enable efficient use of the software
The power of computing effectively doubles whilst costs halve every two years. In addition, technology development has reduced memory costs to insignificant levels so removing the final limitation to the provision of fast machines with huge memories. As a result, we now have the capability to hold and manipulate large models within a computer’s memory, for example the complete supply chain of a major organisation, using the processing power to perform complex calculations, such as supply chain optimisation, in very short spaces of time.
Variations
The most commonly quoted use is the end-to-end integration from receipt of raw materials to delivery to the customer - clearly, an internally focused use, limiting the potential for benefits delivery. Making use of the latest advances in e-business now enables management to include both customers and suppliers in their end-to-end integration. The enhancement of customers and supplier partnerships, in which information is freely shared between all parties for mutual advantage, can be accomplished making use of internet, intranet and extranet technologies.
Alternatively, organisations can integrate their SC processes from top-to-bottom, ranging from long-term planning/forecasting of both supply and demand, to the day-to-day detailed scheduling of goods movements through production plants, warehouse space and customer order despatch. In this way, sales forecasts are no longer ignored or ‘second-guessed’ by production planning and purchasing management, and production capacity availability and raw material purchases reflect reality. In addition, comprehensive measurement of planned-to-actual performance and use of self-correcting mechanisms within the systems can now advise management of deviations.
According to the PA authors, APS systems will allow a side-to-side integration of the supply chain, in which a number of different supply chains, based, for example, upon geographic markets, product groups or channels to market operate in parallel. Often, they overlap at certain points such as production plants or storage facilities. APS systems help to achieve synergies across the separate chains, maximising use of any one facility and minimising asset costs - finished goods may be produced in different plants but stored in a single location. This is particularly the case for capital equipment manufacturers who also offer an after-sale and spare parts service – centralised storage with multiple distribution modes to the end user.
These different forms of integration all enable management to gain information relating to the whole chain rather than individual elements. Consequently, they can support a very wide range of trade-off decisions, designed, for example, to increase levels of customer service, shorten production and delivery lead times, reduce stocks, WIP and rework, increase flexibility and potentially delay further investments in additional SC resources.
The use of Internet technologies and e-commerce will further increase the level of benefits achieved
As mentioned above, within an end-to-end supply chain, internet and e-business technologies provide the potential to both extend an organisation’s own ERP system into those of their customers and suppliers into a single chain and to integrate systems internally. These technologies currently do not provide a massive step-change in benefits, but as their use rapidly becomes more ubiquitous in commercial life, the value of an APS implementation will be compromised, unless companies take full advantage of the speed of access and global reach.
‘Knowledge is the lifeblood of supply chain management’
Knowledge, sometimes in small quantities but from a large number of sources, is the life-blood of SCM. APS implementation is unlikely to be effective unless that information can be collected and made available to it rapidly and regularly. Modern SCM techniques and communication methods such as electronic data interchange (EDI), efficient consumer response (ECR) and vendor managed inventory (VMI), will be instrumental in obtaining the best results from an APS implementation. In addition to the obvious improved levels of accuracy and the faster speed of communication and calculation, the introduction of the latest IT developments will assist management make advances in the development of both customer and supplier partnerships. Technological advances alone are not enough - plugging the skills and knowledge gaps within the organisation is essential
In PA’s view, one of the major reasons for management’s inability to maximise the potential benefits of their ERP system implementation, is a lack of understanding of SCM techniques and the dynamics of each individual element of the supply chain. Particularly, we find that while personnel may have an excellent grasp of discrete aspects of the chain - purchasing, demand management or distribution - rarely is there a clear understanding of the full implications of decisions taken in one part on the chain as a whole.
Working in teams to provide the required spectrum of knowledge can help overcome this. However, PA firmly believes that to extract the maximum benefit from the new technologies companies will require at least one supply chain leader of significant standing. He/she will have to be capable of building and continually refining the total vision of how the new technologies can be best used to achieve the business’s changing objectives, and leading the supply chain team in the delivery of this vision. In addition we believe that the new technologies will demand an overall higher level of competence and expertise throughout all supply chain management functions.
Customer Management
Another area for concern is in customer management. Although often acknowledged as the correct approach, focusing the activities of the SC team on the needs of customers often produces poor results, because of a poor comprehension of the needs of the market as a whole and individual customers in particular. To reap the rewards of ERP and any subsequent APS implementation, management must develop knowledge of:
- customers needs
- total SC costs, and the interaction between those costs and the service delivered to meet market needs
- the impact of decisions made in one area of the chain upon the chain as a whole and
- measures of performance, designed to monitor costs incurred and service delivered.
Finally, if management is not capable of leveraging the potential of the system, return on investment will be compromised, regardless of the functionality and sophistication of the APS implemented. To ensure this does not occur, a comprehensive supply chain skills training programme should be undertaken as a core part of any ERP/APS implementation programme. In addition, implementation partners should be chosen only if they have demonstrable SC expertise that can be deployed and exploited during the implementation process. Failure to recognise the importance of specific knowledge sets will have significant consequences.
The requirement of Supply Chain Management is for integrated, optimised and finite solutions. The combination of an ERP platform and new breed of APS systems, coupled with greater level of informed involvement by managers and staff, will help to meet that requirement and provide the functionality necessary to maximise Supply Chain performance for the whole enterprise. Can any manufacturing organisation afford to miss the opportunity now available to it?
